Question

The current Australian foreign exchange at equilibrium is 0.7 US dollar ($US) per Australian dollar. What will happen to the Australian foreign exchange in the two following different scenarios? a.1. Less and less Americans travel to Australia. Please elaborate your answer using the concepts of the demand curve for Australian dollars and the supply of Australian dollars. [3.5 marks] a.2. Due to the Covid-19 pandemic, the US productivity growth is lower than Australia’s productivity growth. Please elaborate your answer using the concepts of the demand curve for Australian dollars and the supply of Australian dollars [3.5 marks]

please help

Answer 1

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Answer:

The current Australian foreign exchange at equilibrium is 0.7 US dollar ($US) per Australian dollar.

AUD/USD = 0.7

1 AUD = 0.7 USD

a.1. Less and less Americans travel to Australia. Please elaborate your answer using the concepts of the demand curve for Australian dollars and the supply of Australian dollars.

When the less and less Americans travel to Australia then it will decrease demand for AUD and AUD will get depreciated. When American visit Australia then they buy AUD and sell USD and spend AUD in the Australia that increase demand for AUD and AUD get appreciated but in the opposite scenarios it will decrease demand for AUD and AUD will get depreciated.

You can see decreasing demand for AUD shift demand curve left from D to D1 that depreciate AUD.

Due to the COVID-19-19 pandemic, the US productivity growth is lower than Australia’s productivity growth. Please elaborate your answer using the concepts of the demand curve for Australian dollars and the supply of Australian dollars

Due to the COVID-19-19 pandemic, the US productivity growth is lower than Australia’s productivity growth. So, it will increase cost in the US and US products will get costlier than Australian product that will increase demand for Australian products in the US market. Increasing demand for Australian products in the US market will increase export that will increase demand for AUD and AUD will get appreciated against USD.

You can see increasing demand for AUD shift demand curve right from D to D1 that apreciate AUD.

Thanks